Winning Over Gen Y

The Generation Y crowd in their late twenties and early thirties may not have much cash to spare on services or big nest eggs to invest. Still, some planners are proving that it's possible to attract clients at the beginning of their careers. The key is reaching them through their preferred venues - email, text, online videos, Facebook and Twitter - and spelling out how planning advice today can help them grow their wealth much faster.

The combined net worth of Gen X and Gen Y will triple by 2018 to $28 trillion, according to Deloitte, and Gen Y assets will make up about a quarter of that amount. Deloitte projects Gen Yers will receive $18 trillion from their baby boomer parents. With imaginative pricing, it may even be possible to make a small profit on these clients now.

Catching Their Attention

Not surprisingly, young planners say their peers like to talk to people their own age. A 60-year-old may come off as an "authority figure," says Ben Birken, 34, a planner with Woodward Financial Advisors in Chapel Hill, N.C. About 30% of his firm's new clientele so far this year have been young couples.

He finds young professionals in their own habitats - by conducting seminars for parents at his daughter's preschool or for graduate students and young professionals at the University of North Carolina-Chapel Hill. Many state universities, including UNC, tie health care benefits to their pensions, and employees may need to choose between a defined benefit or defined contribution plan.

Rebecca Schreiber, 33, a planner with Solid Ground Financial Planning in Silver Spring, Md., says Gen Yers tend to be referred to planners by a group of their peers on social media or a trusted organization. For example, the Washington, D.C., financial literacy nonprofit, Capital Area Asset Builders, invites Schreiber to teach nonprofit professionals how to manage debt on a tight budget, and many attendees then come to Schreiber for one-time consultations on how to become more independent financially.

Schreiber also conducts workshops and teleconferences for Wi$eUp, a financial education program designed by the U.S. Department of Labor. One recent event was for employees of the White House's Office of Management and Budget. "I use the program for business development," she says. "I have the endorsement of the Labor Department, and Gen Yers trust that kind of referral."

Older planners can also attract Gen Yers if they take the time to answer their questions without speaking down to them, says D. Bruce Johnston, CEO of Advisolocity, a Tuttle, Okla., marketing consulting firm for planners. "Gen Yers will talk to their friends, parents and other trusted sources, do their own personal research, and then they will come to you with specific questions to get more in-depth knowledge," Johnston says.

Gen Yers will also be more attracted to planners who first contact them digitally, he says. "If you're not engaging in social media, then you're going to miss out, because that's where young people live," Johnston says.

Overcoming Wariness

According to a 2010 survey of investor risk tolerance by the Investment Company Institute, Gen Y investors were less likely to take "above-average risk" and more likely to take "average" risk than Generation X investors. Still, according to recent Vanguard research, younger investors are getting more experience with stocks: the average equity allocation of the youngest participants - age 20 - in defined contribution plans rose 44 percentage points from 2003 to 84.7% in 2010. They were more likely to be enrolled automatically by their employers and to choose target-date funds.

Overcoming wariness means you need to be more than congenial. "With baby boomers, it's more about, 'How can we be part of your team, how can we serve you,'" Grose says. Younger investors need to see exactly what "they are going to get for their money."

Planners need to communicate authentically, particularly if they are marketing to Gen Yers through blogs or other social media venues, says R.J. Weiss, a 26-year-old planner and insurance producer for Weiss Insurance Agencies. "A lot of people try to fake social media," says Weiss, who also runs the GenYWealth.com. blog. "But you've got to make it very personable and interactive - share how you've overcome your mistakes."

Creative Pricing

Grose and her colleagues at Lighthouse offer a one-year program called Wealth Accumulator. Clients pay an initial consultation fee ranging from $1,000 to $2,000, in which Grose reviews their current finances and helps them develop an action plan. She charges a monthly fee of $100 to $125 to make sure they're staying on track, checking on whether, for example, they've addressed guardianship issues for young children or obtained disability insurance.

Lighthouse launched Wealth Accumulator a year and a half ago and it's now the firm's fastest-growing service, Grose says. For every typical financial client with $500,000 or more in assets to manage, the firm has served two Wealth Accumulator clients.

Schreiber charges $250 for a phone consultation after reviewing a questionnaire. She follows up with an email summarizing her recommendations and an action plan. Clients wanting additional sessions are charged $100 an hour. Her youthful clientele generate about $25,000 in annual revenue.

"The first thing I look for are red flags, such as rising cost of debt," she says. "I teach them about tools to be more flexible, and they learn about cash flow and emergency funds. The more cash they have, the more options they have, especially if they come across an opportunity, such as an unpaid internship."

One of her young clients wanted to spend several years in Africa establishing a health clinic for women, but she had credit card debt with an interest rate of 30%. Schreiber recommended the woman work a second job on the weekends until she could pay off her debt and then take her "dream job" in Africa.

"At the end of the day, it's not about numbers, it's about communicating trade-offs," Schreiber says. "Then they can make informed decisions and can commit to them."

Joseph Alfonso, principal of Aegis Financial Advisory in Lake Oswego, Ore., also provides onetime consultations for $1,000, deducting the amount from his annual fee for clients who later go on retainer. In two hours, he might cover whether the clients are investing wisely, can afford to buy a home, are saving enough or overspending.

"The biggest element of success is for them to save as much as possible for as long as they can, because cash flow solves so many programs down the road," Alfonso says. He provides a written summary and recommendations on his findings and observations. He sees the consultations as a way for young people to correct mistakes early.

"This demographic is underserved," Alfonso says. "It's difficult for financial advisors to profitably work with these folks, but there are creative ways to do it in a way that still makes sense for the advisor. And if these younger folks have a good experience with you, they may become long-term clients."

Katie Kuehner-Hebert is a freelancer in San Diego who writes for Financial Planning, American Banker, Risk & Insurance and Advertising Age.